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Mitt Romney on Charitable Deductions: A $25,000 Cap?

Posted: 10/18/2012 12:35 pm

RomneyDeb.jpg

Screenshot of Mitt Romney as he spoke about "bringing down [tax] deductions" in Tuesday night's debate


Mitt Romney's proposed federal funding cuts for Big Bird got mentioned by President Obama in Tuesday night's hotly contentious debate. The Republican's planned zeroing of the National Endowment Arts didn't come up.

But there was one comment last night that did have direct bearing on the financial health of nonprofits, including cultural institutions. Romney said this:

In terms of bringing down deductions, one way of doing that would be to say everybody gets---I'll pick a number---$25,000 of deductions and credits. And you can decide which ones to use, your home mortgage interest deduction, charity [emphasis added], child tax credit and so forth. You can use those as part of filling that bucket, if you will, of deductions. But your [tax] rate comes down, and the burden also comes down on you.

Would capping charitable deductions at a low figure (like Romney's hypothetical $25,000) be the death knell for mega-donations that are the lifeblood of cultural institutions?

The underlying question about eliminating or reducing charitable deductions has always been: Do wealthy people who are interested in contributing to charitable causes need the time-honored tax-deduction incentive, which allows them (within certain limits) to deduct the value of their donation from their taxable income? Or will they give generously to their favorite charities, regardless of tax breaks?

Addressing this question head-on in written testimony last year to the Senate Finance Committee (which was considering tax-reform options), the nation's leading professional organization for art museums, Association of Art Museum Directors, said this:

Another argument that has been circulated holds that capping the value of the charitable deduction will not change the behavior of donors. Art museums know this argument to be untrue.

The tax treatment of gifts of art has been altered several times since 1969, and donors' behavior has responded directly, immediately and always negatively. In 1969, Congress restricted the ability of artists to take a fair-market value deduction for gifts of their own art; as a result, artist gifts have been relatively rare ever since. In 1986, the Tax Reform Act made gifts of appreciated property a preference item under the Alternative Minimum Tax; gifts of art plummeted by 90 percent by 1989, causing Congress to reverse itself and restore full deductibility in 1990, upon which giving resumed.

Most recently, the Pension Protection Act [my link, not theirs] so tightly restricted the deductibility of fractional gifts of art that such gifts have practically ceased. In sum, we have a long history of experience with tax deductibility. We understand that donors give for altruistic reasons, but the tax code influences the size, timing, and form of gifts.

The bottom line in this nonprofit arithmetic is that charitable deductions are a good deal not just for the donors but, even more so, for the intended ultimate beneficiaries of this largesse---the general public.

 

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